Air Transport Services Group


WILMINGTON, OH - July 17, 2008 - Air Transport Services Group, Inc. (NASDAQ:ATSG) said today that arbitrators have ruled that its subsidiary, ABX Air, was entitled to full reimbursement of its general overhead expense from its principal customer DHL during 2007. The arbitrators also ruled that ABX Air began earning more than 10% of its total revenues from non-DHL customers effective as of January 1, 2008, and directed DHL and ABX Air to commence negotiating in good faith to determine a reasonable allocation of ABX Air’s overhead expenses related to its provision of non-DHL services.

In November 2007, ABX Air and DHL agreed to arbitrate provisions of their ACMI and Hub Services agreements that cover the allocation of ABX Air’s overhead expenses between DHL and its third-party operations. The dispute centered on a claim by DHL that certain ABX Air expenses beginning in the second quarter of 2007 were no longer eligible for reimbursement in full by DHL, because ABX Air’s revenues from other customers had exceeded a 10% threshold of its total revenues. DHL also claimed that ABX Air’s costs in maintaining its public company status and certain professional fees incurred by ABX Air with respect to an unsolicited indication of interest from another airline were not recoverable under the agreements.

“We are very pleased that the arbitrators upheld our position on the principal matter before them, which was whether fuel expenses reimbursed to ABX Air without markup by DHL should be included in ABX Air’s revenues for the purpose of determining an overhead allocation,” ATSG Chief Executive Officer Joe Hete said. “They ruled that DHL failed to demonstrate that ABX Air had incorrectly treated the reimbursement for its fuel expenditures as revenue under generally accepted accounting principles, and therefore ABX Air’s revenues from sources other than DHL did not exceed 10% of its total revenues during the second quarter of 2007. As a result, there is no requirement for ABX Air to allocate a portion of its overhead expenses to its non-DHL businesses during 2007.”

However, the arbitrators did conclude that ATSG’s revenues attributable to non-DHL services, including those associated with ABX’s affiliates, such as the Cargo Holdings International, Inc. (“CHI”) companies acquired by ATSG on December 31, 2007, are to be included for purposes of triggering an allocation of overhead expenses under the agreements. The ruling stated that “regardless of the treatment of fuel as an element of revenue, that the 10 percent threshold has been met, as from January 1, 2008. The parties are thus required to negotiate in good faith a reasonable allocation of overhead costs attributable to ABX’s third-party business.”

Hete said that ABX Air and DHL will begin negotiations to determine which ABX Air expenses are directly related to its non-DHL operations, which expenses are properly subject to allocation, and an appropriate allocation formula. He said he could not predict when such negotiations might be completed, nor how much incremental overhead expense ATSG might have to absorb without reimbursement. “Even before receiving the arbitration results, we anticipated that we would trigger the requirement to negotiate an allocation in the near future,” Hete said. “We believe that we can deliver good returns for our shareholders from our non-DHL businesses even with a reasonable allocation of overhead to their results.”

Additionally, while noting that costs required to maintain public-company status are reimbursable by DHL under the agreements, except to the extent otherwise allocable to non-DHL business, the arbitrators ruled that ATSG is solely responsible for expenses it incurred to consider and analyze an expression of interest from ASTAR Air Cargo in acquiring ABX Air, and to prepare and complete its acquisition of CHI at year-end 2007. ATSG expects a $2.4 million reduction to second quarter 2008 pre-tax earnings associated primarily with the ASTAR indication of interest.

Lastly, the arbitrators also determined that DHL’s withholding of $8.8 million in payments to ABX Air for 10 days last November based on DHL’s interpretation of the agreements was not a material default under the agreements.

Hete noted that the overhead allocation discussions will be conducted separately from other discussions with DHL concerning its plans to reduce the scope of its business with ABX Air as part of the restructuring of its U.S. operations.

“We continue to seek full and fair treatment of our employees and others potentially at risk of losing their jobs and businesses over DHL’s decision to contract with UPS for air network and ground support services. We are continuing to pursue our plan to maximize returns to our shareholders by providing superior service to DHL’s customers, by making plans to recover our investment in aircraft released from DHL through all of the means at our disposal, and by expanding our growing and profitable non-DHL businesses.”

About Air Transport Services Group, Inc. (ATSG)
Air Transport Services Group, Inc. (NASDAQ: ATSG) is a leading provider of air cargo transportation and related services to domestic and foreign air carriers and other companies that outsource their air cargo lift requirements. Through five principal subsidiaries, including three airlines with separate and distinct U.S. FAA Part 121 Air Carrier Certificates, ATSG also provides aircraft leasing, aircraft maintenance services, airport ground services, fuel management, specialized transportation management, and air charter brokerage services. ATSG subsidiaries include ABX Air, Inc., Air Transport International, LLC, Cargo Aircraft Management, Inc., Capital Cargo International Airlines, Inc., and LGSTX Services, Inc.

Except for historical information contained herein, the matters discussed in this release contain forward-looking statements that involve risks and uncertainties. Air Transport Services Group, Inc.'s actual results may differ materially from the results discussed in the forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, further reductions in the scope of services ABX Air performs under its ACMI and Hub Services agreements with DHL, the consummation of an agreement between DHL and UPS that results in ABX Air’s loss of a significant portion of the services it currently provides to DHL, the negotiation of new terms under the ACMI and Hub Services agreements for allocation of overhead expenses, ATSG’s success in identifying new customers to replace services terminated by DHL, sufficient sources of liquidity and other factors that are contained from time to time in Air Transport Services Group's filings with the U.S. Securities and Exchange Commission, including the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers should carefully review this release and should not place undue reliance on the Company's forward-looking statements. These forward-looking statements were based on information, plans and estimates as of the date of this release. Air Transport Services Group undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

For more information, contact:
Quint Turner
Chief Financial Officer
Air Transport Services Group, Inc.